2026 Housing and Economic Outlook: Small Gains Expected

The U.S. economy faces real challenges, including a softening labor market, policy uncertainty, tariffs, and the lingering effects of the longest government shutdown on record.

Despite these headwinds, the broader economy enters 2026 in solid shape, as fiscal and monetary easing have provided a “good-not-great” macro environment. Business investment and consumer spending remain supported by stimulative fiscal policy, while the Federal

Reserve’s shift toward rate cuts in late 2025 has eased financial conditions. Greater clarity on trade policy has further bolstered confidence, which will enable continued economic expansion in 2026.

Meaningful Indicators

Economic performance varies widely among states, reflecting differences in industrial composition. For example, states with significant international trade exposure have seen weakness due to tariffs, and some agriculture areas have also seen softening of economic activity.  

These regional disparities will continue to influence housing demand and construction activity, with previously fast-growing areas like Texas and Florida posting lagging housing metrics.

Inflation and labor market data remain the most meaningful indicators for 2026. Yet the government shutdown disrupted the release of critical reports, leaving policymakers with incomplete information. 

This lack of data complicates the Fed’s decision-making process, even as it continues to take a data-dependent approach. The resumption of rate cuts in September was aimed at managing risks from weakening labor market conditions, but uncertainty persists as tariffs and fiscal debates weigh on the outlook. Builders can nonetheless count on further easing from the Fed.

Economic Factors

NAHB projects the Fed will reach a terminal federal funds rate of 3.25% by the end of 2026, meaning the central bank will cut interest rates two more times in the coming quarters. 
However, mortgage rates are more closely tied to the 10-year Treasury yield, which faces upward pressure from rising government debt. As a result, mortgage rates are expected to remain near 6% throughout 2026.

The proposed purchase of mortgage bonds by Fannie Mae and Freddie Mac could lower mortgage rates somewhat, but a sustained sub-6% mortgage rate won’t likely occur until 2027. This dynamic will continue to challenge affordability, particularly for first-time buyers, even as lower interest rates for investment capital gradually improve construction financing conditions.

Inflation is expected to remain above the Fed’s 2% target, driven in part by tariff-related costs. The average effective tariff rate may decline if some tariffs imposed under the International Emergency Economic Powers Act (IEEPA) are invalidated, but it will remain elevated compared to levels before the so-called “Liberation Day” package of import duties announced by President Trump last spring.

Combined tariff and duty rates on Canadian lumber, which rose from an effective rate of 14.5% to 45% in 2025, will produce more risk for higher lumber prices in 2026. Given that 25% of U.S. lumber consumption comes from Canada, these trade restrictions could have measurable effects as housing construction activity increases.

The Housing Outlook

The housing market outlook for 2026 reflects both sectoral and regional differences. Single-family housing starts declined in 2025 under the weight of higher interest rates and supply-side headwinds, but NAHB forecasts a modest gain in 2026 as easing financial conditions support production and sales. 

Nonetheless, demand-side weakness persists, with a softening labor market and stretched consumer finances limiting buyer capacity.

Multifamily development may weaken after soft conditions in 2025 in larger metro areas but strengthen for apartment construction in lower-density markets.

Elevated home prices and mortgage rates have priced many households out of the single-family market, redirecting demand toward rental housing. This strength is particularly pronounced in smaller cities and towns, where affordability pressures are less severe.

The remodeling sector remains a bright spot. Despite higher labor and material costs, remodeling spending continues to grow, supported by the aging housing stock and gains in household net worth.

Remodeling now represents a majority share of residential construction establishments, reflecting both supply-side advantages—lower barriers to entry and fewer regulatory hurdles—and demand-side realities, as renovations provide a cost-effective alternative to new home purchases.

While NAHB’s baseline forecast anticipates continued expansion in 2026, policy uncertainty remains a significant risk. The probability of recession over the next 12 months is estimated at roughly 30%.

Key wild cards include the trajectory of tariffs, fiscal debates over government debt, and potential geopolitical disruptions. Labor shortages also remain a pressing issue, with tighter immigration policies constraining the supply of skilled workers and increasing wage costs.

The 2026 housing and economic outlook is one of cautious optimism. Fiscal and monetary easing provide support, but affordability challenges, tariff pressures, and labor challenges continue to weigh on builders and buyers. Single-family construction is poised for modest recovery and remodeling continues to expand.

As NAHB economists emphasize, the path forward will depend on navigating policy uncertainty while addressing structural challenges on the supply-side of the market. The resilience of the housing sector will remain central to sustaining broader economic growth in the year ahead.